From the Wall Street Journal.com:
A U.S. appeals court upheld the IRS in denying more than $50 million in tax losses claimed by two Texas lawyers in an oft-litigated tax shelter strategy known as "son of Boss."
In a Friday ruling, the Fifth Circuit Court of Appeals found that investment partnerships set up by Cary Patterson and Harold Nix lacked economic substance and should be disregarded for tax purposes.
Patterson and Nix earned about $30 million each between 1998 and 2000 representing the state of Texas in litigation against tobacco firms, according to the Fifth Circuit opinion.
"Son of Boss" refers to a category of complex tax maneuvers designed to generate huge losses with little risk to the investor, in order to shelter large capital gains.
Hundreds of taxpayers involved in "son of Boss"-type transactions have settled with the IRS since the tax collector issued a global settlement offer in May 2004.
In a statement Monday, John A. DiCicco, acting assistant attorney general, hailed the appellate court ruling and said the court had "recognized that determinations of this sort must be made on the objective evidence irrespective of the claimed motives of the individual investors."
